Search

Excellence in Risk Management Awards 2017 – the Winners

Country by Country Reporting & the “Paradise Papers”

A general trend for corporate transparency gained a new momentum in November with the revelations of the “Paradise Papers”, an investigation of tax files from offshore jurisdictions. On 14 November during his speech at the European Parliament, EU Finance Commissioner Pierre Moscovici urged fast action on aggressive tax planning.

He explicitly listed the Country by Country Reporting (CbCR) proposal and the EU common list of problematic tax jurisdictions as the two major proposal that remain to be finalised before the end of the current European Commission mandate in 2019.

On 4 July 2017, the European Parliament largely adopted the report on the disclosure of income tax information, also known as Country by Country Reporting, by a very large majority in a plenary session. The report is now in the hands of the Legal committee and the Economic and Monetary Affairs committee of the European Parliament for the final negotiations with the Council, the other co-legislator.

Important amendments have been made by the MEPs with significant business impacts in the coming years. Some are stricter than the initial proposal, such as a global disclosure of tax information for each tax jurisdiction outside the EU, which was previously only on an aggregated basis. Others are more flexible, like the possibility not to temporarily disclose certain items to protect commercially sensitive information.

In addition to the disclosure of income tax paid, the CbCR will require information, presented in a common template, about the number of employees on a full-time equivalent basis, net turnover from related and unrelated, details about public subsidies received or donations made to political organisations, as well as preferential tax treatment, etc.

Non-cooperative jurisdictions

The initiative for an EU list of non-cooperative jurisdictions for tax purposes was already a priority expressed in July by the Estonian Presidency of the EU. Its goal was to have it endorsed by the Council by the end of 2017, but several issues are still to be resolved, such as the screening criteria, the process to update and review the list, and the de-listing process.

In September 2016, as a follow up of its broader Anti-Tax Avoidance Package, the Commission released a first list of 160 third countries that had been scrutinised against specific indicators on economic, financial and political levels. Bilateral dialogues have been taking place since January 2017 between the EU and the listed jurisdictions.

47 other jurisdictions are part of a public “gray” list of countries, meaning they are currently not compliant with EU standards but have committed to change their tax rules (by the end of 2018, or 2019 for developing countries).

This first list is also the result of long diplomatic discussions and a continuing process. The first drafts contained 50 countries; the list now excludes a number of British Overseas Territories such as the Cayman Island and Bermuda that had been on a previous EU draft from June 2015 and are important captive domiciles.

The absence of EU countries or other well-established tax havens are pushing some NGOs to already brand it as a “whitewash”: a politically led list that includes only the economically weak and politically unconnected.

Blacklisted countries could lose access to EU funds. Member states will be authorised to take defensive counter-measures and the Council of the EU will determine exactly which types of sanctions will be possible. It is also likely that scrutiny from tax administrations will increase for individuals and companies having tax connections with one of the 17 countries.

Multinationals will have to be very vigilant on the final content of this future list and the location of their activities, not only as a matter of compliance but also reputation.